RPT-Fitch places NRIF on rating watch negative

Tue Mar 26, 2013 7:52am EDT

March 26 (Reuters) - (The following statement was released by the rating agency) Fitch Ratings has placed Network Rail Infrastructure Finance Plc's (NRIF) 'AAA' GBP40bn multi-currency note issuance programme on Rating Watch Negative (RWN), following the placement of the United Kingdom's 'AAA' Long-term Issuer Default Rating on RWN on 22 March 2013. NRIF's 'F1+' GBP4bn short-term commercial paper (CP) issuance programme is unaffected. KEY RATING DRIVERS NRIF's ratings are linked to the UK's ratings due to the Financial Indemnity (FI) from the Secretary of State for Transport (SoS), whose liabilities are sovereign obligations of the UK. The FI is an unlimited, irrevocable and unconditional obligation terminating on 3 October 2052. Under the FI, the SoS has up to 20 days to meet a claim relating to a note principal repayment, and up to five days to meet a claim relating to a note interest payment or, following the side letter implemented on 19 March 2012, a CP principal payment. The FI states that should NRIF have insufficient cash to cover an upcoming note or CP-related obligation, either the programme administrator or security trustee is required to submit a claim under the FI to the SoS 21 days or six days prior to the obligation arising for principal and interest obligations, respectively. As such, Fitch is comfortable that the structural support provided by the SoS is sufficient to ensure full alignment of NRIF's ratings with those of the UK sovereign. In order to reduce financial counterparty risk related to the account bank, HSBC Bank plc (HSBC, 'AA-'/Stable/'F1+'), NRIF enters into repurchasing (repo) agreements with the bank. Under these agreements, prefunded bond redemption amounts deposited by NRIF with HSBC are secured by high quality, liquid government/supra-national debt security collateral posted by the bank, such as UK Gilts or US Treasury Bonds, and posted collateral is marked-to-market on a daily basis. Fitch considers that this mechanism would significantly reduce counterparty risk if HSBC's creditworthiness deteriorates in the future. RATING SENSITIVITIES Given that the SoS irrevocably and unconditionally guarantees the full discharge of NRIF's debt service commitments, any further change in the UK's rating will lead to a corresponding change in the notes' rating.